What is a Payroll Software and How Does it Work?

Every employee eagerly waits for that paycheck at the end of the month, be it an old school envelope salary or seeing the numbers added into your account on the screen. Payroll can be a hectic process, especially in huge companies and corporations with numerous employees. Every company has a different process and time period of paying their employees, be it a monthly or hourly payment. Following a correct procedure with timely payments and precision can drive your employees to work more productively. And to adhere to this precision and to save time, payroll softwares are getting used more often by companies, and not only by the Accounting and HR departments.

What Exactly Is A Payroll Software?

Read This For A Simpler Payroll System

Payroll software is a tool specifically designed to manage all the employee salary-related transactions in any company. Apart from scheduling timely and precise payment for employees, this software also takes care of employee taxes, tax deductions, and withholdings. If the payment method is hourly, this tool also keeps track of the number of hours worked by each employee. It then automatically calculates the wages to be paid accurately and at remarkable speed. It completes all backend processes while increasing efficiency and saving companies time and money.

How Does A Payroll Software Work?

In order to understand how a payroll software works, we need to breakdown the payroll process to completely decipher it. This is how the payroll process works:

Outlining the Policies

The very first step when you open up a company is to implement financial policies. These policies include things like hourly rate, pay policy, perks, benefits, leave considerations, tax deductions and final rates that need to be outlined. These policies need to be standardized and communicated throughout the company’s management to be on the same page. This is also how you establish the payroll policies on your software that will define your employees’ wages at the end of every month.

The input of Variable Data

Next, you need to feed the software variable data about the attendance of each employee, such as days absent, overtime worked, and holiday hours, if there are any. As soon as the data is entered, the software will commence with the calculations with the “run payroll” option. The number of steps or time taken will depend on the type of software you are using. The total number of hours worked along with overtime is automatically calculated by the software, plus any mandatory deductions such as taxes, insurance, benefits, will be included in the final amount.


The software will recheck the data entered and verify the calculations quickly in order to confirm the final payment amount. It again depends on the type of software you are using.

Keeping Records of Payroll

After the payroll is processed, the program stores the payroll records such as the amount paid, names, dates, and tax numbers. The financial transactions of any company would be accurately recorded and filed to keep the process going smoothly, and to avoid any future payment issues.

Carrying Out Payroll

Once all calculations and records are carried out, and the payroll software reaches a final figure for the salary of each employee, it is time to carry out the payroll. A few softwares have the option of employee self-serve for paying employees, where it will automatically access the employee account details and payslip record. You can then use it to transfer the salaries to the respective employee accounts.

This process is recorded and stored in the software as proof of financial transactions. Now that we have learned what exactly a payroll system is and how it works, let’s take a look at how you can choose the appropriate payroll software for your company. Here are some of the essential features you need to consider in order to choose the best one for your company.

Maximum Security

When choosing a payroll software, you need to be concerned about security. A lot of important records, employee data, account numbers, and financial transactions are stored in the software, and not having enough security can cause data breach, which will result in the loss of records and possible data entrenchment. Software that is programmed with encryption, strong passwords and safeguards should be a priority.

Trusted brand

Buying software from a trusted brand is absolutely necessary and a no-brainer. The manufacturer should be a trusted and well-known brand that has credibility and ensures reliability. Buying software from a random company can lead to lots of errors and malfunctions in calculations or in deleting important information and disrupting the process. You will not only lose the records, but would also need to invest in other software, and start all over again. You can save yourself the trouble by buying from a credible company, to begin with. Even if a little pricier, you’re investing in your much-needed ‘ease of mind’ as well.


If your company already uses a general financial software, you need to check the flexibility and compatibility of the new payroll software and whether it can function appropriately with the existing system. It should not be a problem to integrate it within or switch to the new processing system so that it does not waste time. In addition to flexibility, you can also consider having a software that provides supplementary functions apart from the basic functions that a payroll software needs to provide.

Have the option of manual controls

While a payroll software is 80% more accurate than manual processing, there would be rare times when the software faces errors or glitches. To make sure you get the correct results, you might need to enter or change certain data manually. Make sure that you choose software that has a very low margin of error, and even if it does, you can enter the data manually.

Be it a small business or a huge corporation, incorporating a payroll software can increase business efficiency, save time, reduce errors and keep a perfect track of documenting records. Also, you would want your employees to be happy and satisfied with the timely payment of salaries, which will, in turn, increase productivity.

FG Editorial Team
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